For Sharon Tsang, who owns a furniture factory in Sabah, Malaysia's new minimum wage policy could drive her and other small and medium-sized employers out of business.

"Every month, my business costs will rise 15 per cent because of the wage increase, but I can't raise my furniture prices that much as I will then lose customers," she said. "If this goes on, I guarantee that my business won't last for another year."

Tsang's factory employs 60 workers, more than half of whom are foreign workers. Small and medium-sized manufacturers in Malaysia typically depend on cheap foreign labour to do low-skilled jobs in the past few decades.

But the days of cheap foreign labour are ending now that Malaysia has implemented a minimum wage policy of 900 ringgit (S$298) for workers in Peninsular Malaysia and 800 ringgit for those in Sabah and Sarawak. The policy took effect on January 1; small businesses have until July 1 to comply.

Without a minimum wage, a foreign worker earns about 600 ringgit in basic salary a month. The total goes up to about 1,200 ringgit if free housing, overtime and other benefits are included.

Already business owners are complaining that the cost of hiring foreign workers will balloon by about 70 per cent annually.

Some businesses unable to cope, such as petrol stations, are not renewing their foreign workers' contracts. As a result, some 50,000 foreign workers at petrol stations are expected to lose their jobs once their contracts expire.

However, many businesses, especially in manufacturing, still need foreign labour to work in factories or as cleaners, jobs shunned by the local people.

Employers' associations recently suggested that foreign workers be made to bear the foreign worker's levy themselves. They also want to stop providing free housing for foreign workers.

Employers in manufacturing pay an annual levy of 1,250 ringgit per foreign worker. The levy rises to about 1,600 ringgit by the fifth year of the worker's employment. Services sector employers pay a different rate.

"We are not asking the government to abolish the minimum wage policy for foreign workers but rather, to make it fairer for local employees who don't enjoy the benefits these foreign workers have currently," Shamsuddin Bardan, executive director of the Malaysian Employers' Federation told The Straits Times.

"It will not cause foreign workers to get lower take-home pay, as overtime charges will go up as a result of the minimum wage policy. At the same time, it will reduce employers' burden."

The government has rejected the suggestions for a two-tier wage system, saying that it goes against employment laws that do not allow discrimination based on the worker's nationality.

Still, employers argue that with the new minimum wage, they will have to bear 8.4 billion ringgit in additional costs every year.

But some analysts say a two- tier wage system will not work.

"Southeast Asia is increasingly becoming an employees' market, and there will be fewer incentives for foreign workers to come here as their economies back home grow faster," said Khoo Kay Peng, a political analyst who runs his own firm.

"Businesses will just have to change their mindsets about depending on cheap labour, and start reinventing themselves to stay afloat."